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The implication here is that there were not any "extenuating circumstances," and by that I mean that the circumstances were artificial and were the result of a

The implication here is that there were not any "extenuating circumstances," and by that I mean that the circumstances were artificial and were the result of a direct action made by Robinhood as a result of their own poor business practices. It is not an uncommon occurrence for a retail broker to deal in high-risk securities on their clients behalf, and for those high-risk securities to vary wildly in price and liquidity. Collateral requirements are posted to all clearing members every morning during pre-market hours, and they do increase and decrease with respect to the DTC/NSCC VaR (Value-at-Risk) models. Brokers and clearing institutions maintain cash reserves and additional avenues of funding for this very purpose and we can see that Robinhood had no trouble with that aspect of their business - just like every other broker. Likewise, it is not unreasonable for investors to expect that a broker would actually possess the shares that the investor has purchased, and it is expected that the broker would make a timely effort to procure actual shares after acknowledging that an order was filled. It seems that perhaps this expectation was broken by Robinhood's bizarre book-keeping practices. The "extenuating circumstances" are simply a result of Robinhood deciding to play a game of brinkmanship, and rather than owning up to the problem and paying out of pocket for their mistake, they decided to hurt their own customers. EDIT: I'd like to cite some articles which hopefully provide insight into Robinhood scrambling to locate shares on transfers to other brokers, and the unusual amount of reported fails-to-deliver that immediately occurred at the time that Robinhood took action. https://www.cnbc.com/2021/02/05/ftc-sees-surge-in-robinhood-complaints-as-clients-claim-they-cant-leave-the-app.html https://www.cnbc.com/2021/02/05/ftc-sees-surge-in-robinhood-... https://www.bloomberg.com/news/articles/2021-02-17/sec-data-show-359-million-of-gamestop-shares-failed-to-deliver https://www.bloomberg.com/news/articles/2021-02-17/sec-data-...

tptacek 5y ago
Obviously, Robinhood did have problems with this aspect of their business, because the collateral requirements they got that morning would have made them insolvent. You can get angry at Robinhood for being a clownfire and I won't argue. But you're saying much more than that.
gruez 5y ago
>The implication here is that there were not any "extenuating circumstances," and by that I mean that the circumstances were artificial and were the result of a direct action made by Robinhood as a result of their own poor business practices. It is not an uncommon occurrence for a retail broker to deal in high-risk securities on their clients behalf, and for those high-risk securities to vary wildly in price and liquidity. People buying high risk securities isn't uncommon, but everyone piling on to the same high risk security at the volumes seen that week is uncommon. >Likewise, it is not unreasonable for investors to expect that a broker would actually possess the shares that the investor has purchased, and it is expected that the broker would make a timely effort to procure actual shares after acknowledging that an order was filled. Did robinhood fail to do deliver shares? Also keep in mind robinhood doesn't operate like amazon. They're not fulfilling orders from shares they have on hand. Them being able to deliver the shares is contingent on the clearinghouse being able to deliver the shares. Them not being able to because the clearinghouse and/or their counterparties weren't able to shouldn't really be blamed on robinhood themselves.

tptacek 5y ago

Obviously, Robinhood did have problems with this aspect of their business, because the collateral requirements they got that morning would have made them insolvent. You can get angry at Robinhood for being a clownfire and I won't argue. But you're saying much more than that.

gruez 5y ago

>The implication here is that there were not any "extenuating circumstances," and by that I mean that the circumstances were artificial and were the result of a direct action made by Robinhood as a result of their own poor business practices. It is not an uncommon occurrence for a retail broker to deal in high-risk securities on their clients behalf, and for those high-risk securities to vary wildly in price and liquidity. People buying high risk securities isn't uncommon, but everyone piling on to the same high risk security at the volumes seen that week is uncommon. >Likewise, it is not unreasonable for investors to expect that a broker would actually possess the shares that the investor has purchased, and it is expected that the broker would make a timely effort to procure actual shares after acknowledging that an order was filled. Did robinhood fail to do deliver shares? Also keep in mind robinhood doesn't operate like amazon. They're not fulfilling orders from shares they have on hand. Them being able to deliver the shares is contingent on the clearinghouse being able to deliver the shares. Them not being able to because the clearinghouse and/or their counterparties weren't able to shouldn't really be blamed on robinhood themselves.